Q+A With Royal Bank of Scotland’s Middle East CEO

ByNicolas Parasie

Bloomberg News

The Middle East is one of the few regions where RBS is looking for superior growth compared to more mature markets.

As chief executive of Royal Bank of Scotland in the Middle East and Africa, James Miller has his work cut out for him. Following the bank’s bailout by the U.K. government in 2008, the group has retreated globally, terminating a number of activities and in the process laid off thousands of employees.

Regionally, the Edinburgh-based bank was one of the most exposed international lenders to several Dubai government-related entities that restructured billions of dollars of debt due to the financial crisis and a domestic property sector crash. The lender led many of the debt negotiations that ensued and in 2012 even started legal proceedings against an investment vehicle owned by Dubai’s ruler.

In 2010, RBS sold its United Arab Emirates retail banking arm. Yet, the Middle East is one of the few regions where the bank is looking for superior growth compared to its more mature markets. Mr. Miller took up his new position six months ago and looks at both the past and future.

WSJ: What is your strategy today in the Middle East and Africa following the global retrenchment of RBS?

Mr. Miller: “We’re really active in supporting local corporate clients and our inbound clients, the so-called corporates we support around the world and that have subsidiaries here – from Asia, the U.S., Europe, for example BMW and Nokia. There are 3 pillars of product areas: transaction services (trade and cash), debt financing business and then risk management (FX rates, interest rates hedging). We don’t do M&A anymore, but we do find opportunities where we can advise clients on specific transactions where we have lots of expertise. We want to deploy more capital here and we want to support a larger number of clients. We are upgrading our licence in Qatar to a local broader banking onshore licence.”

WSJ: RBS played a prominent role in many of Dubai Inc.’s restructurings. What lessons did you learn from this experience?

Mr. Miller: “Lots of our losses were effectively centred around Dubai. We still have various losses on our books and they’re being managed through a separate part of the business, they’re effectively ringfenced from our ongoing core business. That’s being dealt with and is ongoing and that will probably take a number of years to unwind itself. There are a lot of lessons we learned from construction and real estate. That’s not to say we don’t do it but we are just very cautious around developers and the type of credits we support there. That would be the one thing to highlight: our appetite around construction and developers would be more limited. I do think banks generally are a little more selective about what they put their money into so a lot of stuff where you see us invest heavily in is around sectors that are capital intensive such as energy and natural resources, the sort of sectors which banks are generally more comfortable with. If you would see banks starting aggressively going into the realty sector again that would be alarming but I’m not sure they will.”

WSJ: With real estate prices on the rise again, some say a new asset bubble could be in the making – would you agree?

Mr. Miller: “When I first arrived here, it did strike me that rent and property prices were rising quickly. I thought are we going in another cycle again? This area is not an emerging market but there’s an element of that volatility in terms of prices and I’m not sure that will ever go away. Most of the reports tend to say it’s not a bubble and there’s still room for growth in real estate prices. There’s potential for more controls that the governments could put around. Central bank regulation is one thing but as a lot of the buyers are cash buyers that doesn’t necessarily solve anything. I think the flipping of property is something that could be controlled more.”

WSJ: Domestic banks are increasingly active on the international investment banks’ own turf – how do you view them? (Mr. Miller’s predecessor Simon Penney joined Abu Dhabi’s First Gulf Bank as head of wholesale banking)

Mr. Miller: “The aspiration of some local banks is very ambitious and I can see why. How successful they can be, that we’ll have to see. At the moment we’re seeing them very aggressive in what they do. But to go into more investment banking type of products isn’t about lending money aggressively: you need to build up an expensive infrastructure and distribution platform around that. I’m not saying they can’t do it but that’s quite a big investment they need to make and they need to attract the right talent and it’s not an easy thing to do. For somebody to go from being a strong local lender into M&A, equities, debt distribution, it takes a lot of time and you got to do it slowly and show your clients you can do it.”

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